On appeal of an arbitration award, the Court has provided a detailed review of the application of the implied indemnity pursuant to clause 8 of the NYPE form charterparty.
The background facts
The claim arose from a trip time charterparty (Charterparty) entered into on 1 April 2014. The Charterparty was on an amended NYPE 1946 form for the M/V GRAND AMANDA to carry lawful and harmless cargoes via East Coast South America to the Far East.
The Vessel attended at two load ports, first loading a cargo of Uruguayan soyabeans at Montevideo and then proceeding to Bahia Grande to load a second cargo of Argentine soyabeans.
The cargo was lawful and harmless. However, upon inspection during the voyage, the Uruguayan cargo was found to be affected by self-heating and mould. Upon discharge at China, the Uruguayan cargo was found to be mildewed, discoloured, caked and blackened. The Argentine cargo was discharged without issue.
Cargo interests brought a claim in China for the damage found to the Uruguayan cargo. Owners decided not to try to challenge jurisdiction, even though the bills of lading issued incorporated the English law and arbitration provisions of the sub-voyage charterparty. Instead, Owners sought to defend the claim in China on the merits, based on inherent vice.
The Chinese courts found in favour of the cargo interests, both at first instance, on appeal, and then in the People’s Supreme Court. Owners’ P&I Club paid the judgment sums.
The arbitration proceedings
Owners commenced arbitration under the Charterparty and based their claim on: (a) the agreed allocation of liability under the Inter-Club Agreement (ICA), as incorporated into the Charterparty; or (b) the implied indemnity arising from the standard employment and agency provision in clause 8 of the NYPE form.
Owners’ claim under the ICA failed. The Tribunal concluded that clause 4(c) of the ICA was not satisfied where a cargo claim is established by award or judgment, rather than by a consensual settlement. However, the Tribunal stated that if the ICA had been applicable to the circumstances before them, then the amount of the cargo claims and associated costs should have been apportioned 100% to (ie payable by) Charterers.
However, Owners’ claim under the implied indemnity succeeded. The Tribunal concluded that a cargo with a propensity to self-heat was outside the limits of the Charterparty. Owners’ resulting liability to cargo interests was, therefore, not an ordinary cost or risk associated with the performance of the chartered service. Owners, therefore, had a right to be indemnified by Charterers under the implied indemnity.
The Charterers’ appeal
Charterers appealed the arbitration award under s.69 of the Arbitration Act 1996 (point of law). The ground of appeal was as follows:
[Sheffield Corporation -v- Barclay [1905] A.C. 392,397]
Charterers argued that the Charterparty specifically provided details of cargoes and ports that were outside the bounds of the charterparty. This cargo was lawful and harmless and was delivered at a port within the Charterparty limits. Owners, therefore, accepted the risks arising from such carriage, which had not changed since entering into the charterparty. It should not matter if there was inherent vice in the cargo or not.
Charterers asserted that the proper interpretation of The Island Archon [1994] 2 Lloyds Rep 277 and other authorities supported an argument that the risk involved in the present case was not covered by the implied indemnity.
Charterers argued that Owners must have been aware of, and therefore accepted, the risk of an adverse judgment from the Chinese courts.
The Island Archon was a case involving a vessel being ordered to Iraq to discharge cargo. At the time the orders were given, there was a well-known system in place in Iraq involving vessel detention and spurious cargo claims. In that case, the implied indemnity was found to apply. However, although the risk was known at the time the order was given to proceed to Iraq, it was noted in the Island Archon that the risk was not notorious at the date the charter was entered into.
Charterers further argued that the ICA provided a complete code for the allocation of responsibility for cargo claims. The implied indemnity should therefore not operate at all in the circumstances, or alternatively only to the extent the ICA apportionment would have /50.
The Commercial Court decision
The Court dismissed the appeal, holding that the Tribunal had made no error in law.
The decision confirms that the implied indemnity is an application of the general principle that:
Under clause 8 of the NYPE form, the master is under the orders of the charterer as regards employment and agency. Because owners are bound to comply with charterers’ orders, there is a prima facie implied right of indemnity in favour of the owners for losses or liabilities arising from such orders.
The Court confirmed the Tribunal’s findings; stating that in circumstances where there were no specific provisions of the charterparty allocating the relevant risk to Owners, deference should be accorded to the conclusion reached by the experienced Tribunal in the arbitration.
The Court made it clear that the Island Archon decision did not turn on the change in circumstances between the time the charterparty was entered into and the time of the voyage. The judgment in the Island Archon did indicate that had the Iraqi system been notorious at the time the charterparty was entered into, then there “might be substance” in an argument that the owners had implicitly agreed to bear those risks. However, that did not mean that owners have implicitly agreed to bear all risks that do not arise from an external change of circumstances after the charterparty date. The Charterers’ argument that no implied indemnity arises absent such a change was, therefore, incorrect in law.
The Court also clarified that the implied indemnity is not limited to unusual circumstances and nor is there any rule of law or general principle that owners should be taken necessarily to have assumed the risks arising from ‘ordinary’ cargo claims.
The Court also rejected Charterers’ “complete code” argument. The ICA did not apply and therefore the implied indemnity remained available to Owners.
Comment
It has previously been stated that the scope of the implied indemnity is not entirely clear. This case does clarify the scope, at least to some extent. However, the exact application of the implied indemnity may still be difficult to pin down in every case. Each case will ultimately have to be decided on the facts. What is now clear is that certain factors should not necessarily limit the application of the implied indemnity:
Finally, it is worth noting that, on 14 July 2025, the International Group of P & I Clubs published a revised version of the ICA. Within this amended form, clause 4(c) now expressly states that “settled” means when a claim is resolved by agreement and when determined by a court or tribunal.
This case may well have been concluded differently had the amended ICA provisions applied at the time.
Source: Hill Dickinson
